What are Bonds?
A bond is a debt security means where the person or company that issues the bond owns the bond holder’s debt. Basically, a bond is a financial contract between the issuer and the bond holder with the agreement to pay money back with interest at scheduled, fixed intervals.
A bond is essentially a loan with a borrower, a creditor and a financial contract between the two. These bonds can provide to the borrower enough capital to fund long term investments or certificates of deposit (CDs). Bonds are like stocks as both of them are financial securities, however, in stocks, the shareholders have equity stake in the company of which the stock is from, and bonds have a defined and agreed upon term where they are effective in a preordained period of time.
What are the different types of bonds?
Bonds come in many forms for many specific purposes. Several types of bonds include:
- Fixed rate bonds which has a set rate of interest through the life of the bond,
- Floating rate notes which have a variable rate interest index,
- Zero-coupon bonds, which pay no regular interest,
- Inflation link bonds which fluctuate in accordance with inflation in the economy,
- Asset-backed securities where the interest rate depends on the amount of capital has been given as collateral,
- Perpetual bonds which have no preordained maturity date,
- Bearer bonds which is an official bond with no official holder,
- Subordinated bonds which are crafted specifically for liquidation bankruptcy,
- Municipal bonds which are governmental bonds without restriction of tax on them, and serial bonds which gain interest over a period of time.
Why buy Bonds?
Bonds are a safe way to make investments during a rough economy. They make it easy to raise capital to fund investments and make it safer to hold that capital.
Are there any regulations?
Bonds vary depending on their specific purposes and agreements. All regulations and repayments are based on the particular bond that is issued by a third party. This could be a bank, loan company, individual enterprise, or other financial institution.